A second referendum may be a possibility

When Theresa May called a surprise general election in April, the opinion polls at the time would have translated into a majority of up to 100 seats in Parliament. Such an outcome would have given her a very strong mandate to either take a very hard stance in her negotiations with Brussels or alternatively would have given her the strength to make the compromises necessary to achieve a softer version of Brexit. We really had no idea about which was the most likely possibility, particularly given that the nature of the majority was also an important consideration. If it had consisted of strong pro-Brexit Tories, then her options would be limited and vice-versa. During the campaign, she did adopt a very hard-Brexit stance, but that is now irrelevant as her power has totally evaporated and her survival is hanging by a thread.

However, this is all now of academic interest only. Despite what the odd opinion poll was suggesting, I believed that when push came to shove, she could have extended her majority to at least 50 seats. That did not transpire and a hung parliament is what we have ended up with. In terms of going into a Brexit negotiation process in less than two weeks, this is a disastrous situation for the UK. Most of the power was on the side of Brussels going into the negotiations in any event, but the UK is really now in a very weak place. The Brexit outcome was always fraught with utter uncertainty, but it has now descended to a totally new level of uncertainty. The biggest question is if the negotiations did commence on June 19th as planned, who will Brussels be dealing with? Perhaps it will be a Tory government supported by the DUP party that campaigned for Brexit.

I have believed since late last year that the possibility of a second Brexit referendum was politically impossible, but that may now have changed. Labour made strong gains in areas that voted strongly in favour of Brexit this time last year, so perhaps the overall vote can be interpreted as a nation recognising the mistake it made on June 23rd last year. A second referendum is now a possibility, but the politics of it all are totally up in the air.

By the end of today the whole situation may have changed again as it is a totally fluid situation. From the perspective of the markets, this level of uncertainty is toxic and not surprisingly sterling is under pressure against the dollar and the euro. Obviously, this is not good news for Irish exporters and retailers, but the longer-term impact of last night’s result is likely to give us a softer Brexit than if May had achieved a strong working majority. As a result of the election, I suspect that the odds have shifted towards a softer Brexit which would be good for Ireland. Indeed, the possibility of no Brexit at all should not be discounted totally. Who knows? The anti-Brexit LDP party fared very poorly.

We will need to examine the nature of the government that is formed, most likely by the Tories, and also the nature of those elected to parliament.

The lesson we should all have learnt over the past couple of years is that politics almost everywhere is in a state of extreme flux, with only a few outliers, such as North Korea. Predictability is gone out the window so all economic forecasts should be treated with extreme caution.

We could well have another UK election within a year. Again, who knows?

Jim Power,
Chief Economist,
Friends First

The views and opinions expressed in this article are those of the author.